03 April 2015

Review, Janine Wedel, Collision and Collusion (3)

Janine Wedel, Collision and Collusion, Palgrave Macmillan (2001).

Common acronyms: Harvard Institute for International Development (HIID);
United States Agency for International Development (USAID; main distributor of US government aid); Russian Soviet Federation of Socialist Republics (RFSFR, constituent of the USSR)--after 1992, the Russian Federation (RF);

One of the maddening things about this book is that Prof. Wedel seems to have no discernible philosophy. On the one hand, she objects to the strategy, adopted by USAID, of attempting to bypass existing governments in favor of direct assistance to privatizing firms (praising European programs that did the opposite; see p.36); on the other, she objects to the US government being co-opted by specific politicians (the gist of Chapter 4).1 On the one hand, she objects to capricious control over funding by bureaucrats in Washington (who did not give field representatives enough autonomy--pp.33-34); on the other hand, region organization of US aid rather than national programs gives program managers too much power to shift funding to politically pliant governments (endnote 74, p.35). On the one hand she objects to the politicization of economic policies, so that consultants took sides in political elections.2 On the other hand, she attacks the arrogance and certitude of the (naturalized Russian-)American advisers.

Wedel mentioned3 that much of her research came from Anne Williamson, author of Contagion (unpublished). Her testimony to Congress4 at once struck me as a version of Wedel's own account of events, but without the diffidence. While Wedel's account seems to hover between explicitly blaming USAID for Cold War 2, and backpedaling, Williamson minces no words (there are subtle differences: Wedel is a trained anthropologist, whereas Williamson discusses the Russians as if they were a challenging breed of horse, bred centuries ago to require a firm guiding hand.). Williamson praises Larisa Pyasheva (or Piasheva), a staff adviser to Moscow Mayor Gavril Popov, as having concocted a plan for privatization that would have totally and suddenly resolved all the country's problems at once; and blames the US for total disaster by failing to seek her out and compel the Russian authorities to implement her plan.5 That, and her admiration for Wilhelm Röpke's presumed creation of postwar Germany, suggested that Russia was a totally blank slate on which a cohesive USA could write whatever it wanted--"us," with our global monopoly on agency and our unique potential to know the Truth (if only "we" really wanted to).

Anne Williamson may, or may not, be an avatar of Janine Wedel herself. Wedel is the well-nigh Quelleof allegations that the US government, deceived by Harvard, decisively and maliciously intervened to promote fake market liberals like Anatoly Chubais and Yegor Gaidar (instead of real ones like Grigory Yavlinksy or Larisa Pyasheva), thereby turning Russians against the ideals of democracy and free markets. Even Matt Taibi and Mark Ames (in The Exile, 2000, p.237), distinguished journalists themselves, cite Prof. Wedel's work as evidence of this. Wedel's writing is extremely abstract, focused mainly on expenditures as conclusive evidence of agency; this agency is always decisive,and always misguided (actually, insidious).

Click for larger image

Russian Constitutional Crisis, October 1993

And while most journalists have subtly different narratives and focuses when writing about crises, Wedel's and Williamson's are the same. In contrast, authors at The Exile (and its successor, Exiled where a lot of archives from The Exile are routinely printed) are generally hostile to capitalism and its ideological hold over the USA; Williamson's (and Wedel's) premise is that the authorities in the USA betrayed capitalism. No one would think to publish Anne Williamson's views in The Nation; but Janine Wedel? Perfect fit.

Anyone with the slightest familiarity with the authors who wrote for Exiled, or friends like Matt Bivens (1997), knows these people are not remotely admirers of USAID. But they're also not enthusiasts for the ideology of free markets embraced by Janine Wedel. For them, the problem was not that voucherization was adopted (whether under foreign pressure or not), it was that privatization was given top billing. If I have understood them correctly, the real problem was that actual markets, let alone free markets, simply did not exist in Russia c.1991-1996; so "privatization" would necessarily mean plunder, not competitive management. And arguably radical market reforms really weren't what Russia needed, then or now.

That's a matter of personal outlook, and it does need to be said that good journalists aren't wedded to particular policies, because of they were, they'd fail to acknowledge when that policy was failing.

However, this brings me to my final point. Wedel focuses on flaws in the process of privatizing Russia, but not on what these flaws led to (aside from the generally prevailing anomy of Russia today). She mentions that the Supreme Soviet of the RSFSR had passed a privatization law that would prevent corruption (p.137), but Russian Pres. Yeltsin's appointees pressed for a system that ensured corruption.6 How did the first law prevent corruption, and why is Prof. Wedel so certain it would have? Yes, she's certainly correct that privatization in both Russia and Ukraine occurred in a manifestly corrupt way, and this was a byproduct of the laws, but it's really important for readers to know specifically how it did and what plausible alternatives existed.

For example, Russia was not the first country in Europe to experience a transition to a capitalist economy; and one could argue that, in 1991, the results of "experiments" in Central Europe were far too spotty to draw any valid conclusions. But there had been a widespread consensus among economic historians in the capitalist bloc that the Third Reich had been a command economy--albeit, with notionally private ownership. One could argue that, in 1992, post-1947 Germany provided a much more convincing case of successful transition to market capitalism than did post-1989 Czechoslovakia--the model that was actually used. More relevant still, after 1945, the business management of the Third Reich was morally discredited but retained vital technical expertise--a conundrum for the Occupation authorities and for Christian Democrats who inherited control of the country.

Did Russian authorities consider postwar Germany as a model for Russian transition to capitalism? Why or why not? If yes, why was that model rejected so vehemently? Germany was, after all, not only well known to the Russians and Western leaders, it was the supreme economic power in Europe. What lessons could Russians and their Western liaisons have been expected to draw from Germany's impossible-to-ignore success story? Did Germans see their country as a model for Russia? If they did, what did that model entail?

In the first part of this essay, I mentioned that I hoped to address an objection: that conditions in Russia were too murky as a result of the bad processes Prof. Wedel is exposing, and that for this reason, analysis of how policies led to bad outcomes (and how these outcomes could have been avoided with different policies) is impossible. As far as I can remember, Wedel never claims this, and I don't want to put words in her mouth, but it does seem like she felt privatization policies were not worth discussing as policies. Hence, the process by which political actors got their way is given top billing instead.

This is understandable, especially in so far as it advances her case polemically. For example, even the most cursory glance at the politics of transition makes it obvious that something was very wrong. The method by which Yeltsin secured control over the Russian government after the 1993 constitutional crisis, for one thing, cast a pall over whatever happened--or could have happened--afterwards. Even if enthusiastic support from the US had nothing to do with Yeltsin's conquest of power, it still was morally wrong for Washington to provide it. And so, in the end, Wedel's points are about a morally purblind Washington and its biggest thinktank, Harvard.

That's a fairly weak polemical position to have, because nobody wants to defend the 1990s (except people whose reputation was directly affected, like Prof. Andrei Shleifer; even Prof. Jeffrey Sachs and George Soros have divorced themselves from those events by denouncing them, and here's what that looks like). And saying "we" or "the USA" as if the typical American reader had the slightest thing to do with it makes one look unhinged. This was a period of total confusion; all of the systems of accountability had broken down, in the sense that everyone was improvising, typically in a fog of ignorance. No one possessed a constitutional mandate to react to what was happening.

This book is like a postmortem of a massive earthquake, heaping scorn on the conduct of officials once the earthquake has begun. The collapse of the USSR was certainly a crisis, but at the time officials in NATO member states did not realize it was, and when they did, they were overruled by their most ruthless, purposeful colleagues--or bosses. Usually, when times are "normal," processes spawn policies: the American electoral system, with its money and corporate-controlled news outlets, for example, help determine the decisions that politicians will make. But in a revolutionary upheaval, this is backwards: the policies taken long ago, like the Cold War strategies of the rival blocs, determined how leaders would perceive the situation, and what potential disasters they hoped to avoid. Once the earthquake of August 1991 hit, no human planner had the ability to master to the situation. No one even knew what it was.

ADDITIONAL READING

Matt Bivens & Jonas Bernstein, The Russia You Never Met (PDF), Demokratizatsiya: the Journal of Post-Soviet Democracy 6, no.4 (Fall 1998). Matt Bivens was (at the time of its writing) a former editor of the Moscow Times; Jonas Bernstein was a business writer for the Moscow Times and analyst for the Jamestown Foundation; Matt Bivens was business writer for the Moscow Times's sister publication, the St Peterburg Times.

Readers may not realize how hard, if not impossible, it is to make such a distinction; and perhaps I'm totally wrong, and it is. But Wedel specifically praises PHARE thus:

Many of the EU's PHARE programs were administered through Program Management Units (PMUs), which were set up either inside the government ministries or in parallel with them. Although EU representatives typically were assigned as advisers to PMUs, the PMUs were staffed and directed by recipients, who naturally had access to local contacts.

But in the case of a transitional economy, the object of assistance is to build up a viable market based economy, not revise modalities of central planning! In a sweeping transition, the object is to restructure the entire system of government and business management, and this is (a) an intensely political decision, albeit on a small scale, and (b) it means interaction with the government cannot occur through civil servants (who will necessarily resist the sort of drastic changes transition requires of governments); it must occur through democratically accountable figures like cabinet ministers and their deputies.

This may be a misunderstanding on my part of what Prof. Wedel is trying to say. An alternative interpretation may be that, yes, Prof. Wedel knows that economic policy involves political judgments, but policy advice should be neutral with respect to political factions. If Ruslan Khasbulatov were to support privatization as well (and she says he did) then it was the responsibility of Washington to remain steadfastly neutral in the March 1993 Constitutional Crisis. I would certainly approve of this as an ideal, but it's not very realistic.

In an exchange in The Nation, "The Nation: Exchange of letters between George Soros and Janine Wedel," Janine Wedel mentioned that she was relying on research by Anne Williamson. Williamson's view of the 1990s in Russia is that the situation could have emerged perfectly if the Administration had embraced conservative orthodoxy and imposed it on the Russian authorities; and the reason it did not, is some mysterious conspiracy of Pres. Clinton to discredit capitalism and bring about a return of Communism.

Larisa Pyasheva's plan, as near as I can find out, was to privatize firms in Russia by awarding ownership of them to the existing employees. Williamson admired this plan, whatever it was, and praised the author of it for being an Austrian economist like Wilhelm Röpke, the presumed architect of Germany's economic miracle. To be clear, Larisa Pyasheva was not a famous person in 1991 (when the Harvard-Chubais connection appeared), but she and her husband had written Hayek-inspired articles in the dissident publication, Noviy Mir (1987). See Bengt Svensson, Seven years that shook Soviet economic and social thinking: reflections on the Revolution in Communist economics 1985-1991, Doctoral Dissertation, University of Stockholm (2008), p.81. She published occasionally under the name L. Popkova. Notice that in a 170-page monograph about dramatic changes in economic thought in the USSR of this period, Pyasheva gets one mention, as an ideological outlier.

UPDATE (29 June 2015): I believe I finally stumbled across the answer: in Martin McCauley, Bandits, Gangsters, and the Mafia: Russia, the Baltic States, and the CIS since 1992, Pearson Education (2001), p.273, it is pointed out that the original privatization law required that vouchers not be sold for at least threee years after issue, and to prevent this from happening, they were issued with names (and presumably identifying serial numbers). On 14 August 1992, Yeltsin issued a degree calling for the vouchers to be issued without names, and therefore fungible. This played a major role in the ability of some players to acquire the vouchers for shockingly small sums of money. Perhaps by September 1995, Russian holders of the vouchers would have been better aware of how to maximize their returns on the vouchers they had.

02 April 2015

Review, Janine Wedel, Collision and Collusion (2)

Janine Wedel, Collision and Collusion, Palgrave Macmillan (2001).

Common acronyms: Harvard Institute for International Development (HIID)
United States Government (USG); Government of the Russian Federation (RFG)
Russian Privatization Center (RPC); State Property Committee (GIK, in Russian)

Here may be a good time to remind readers that I am not a specialist in Russia or its process of privatization. However, I was motivated to do some investigation into the chapter on Harvard's Institute for International Development (HIID), since this is such a momentous historical event. It implicates many of the top intellectuals of contemporary economics, including Anders Aslund, Andrei Shleifer, and Jeffrey Sachs; and the Harvard (Kennedy) School of Government. It stimulated a wave of mistrust of foreigners, and in particular, of the USA. At the same time, many of the winners in this scandal went on to become decisive actors in the political life of Russia.

So what really happened?

In Leningrad (later renamed St Petersburg), a reformist mayor named Anatoly Sobchak formed a group of supporters, deputies, and advisers that Janine Wedel calls the "Chubais Clan" after its key national-level principal, Anatoly Chubais.1 A startlingly large number of major oligarchs and national officials in Russia would come from St. Peterburg and be linked to this clan; other authors have linked Vladimir Putin to the Chubais Clan, although he (naturally) denied any contacts with Anatoly Chubais personally.

The Chubais Clan, according to Wedel, was uniquely capable of influencing the Russian government, to the point that the Russian state was practically a projection of the Clan's intent (p.101; also, Wedel, "Clans, Cliques, and Captured States"--2001). For the record, it is true that Vice-President Al Gore had a close working relationship to PM Chernomyrdin and Deputy-PM Anatoly Chubais, and this has been used a reproach against the Clinton Administration generally; once again, US leadership allowed itself to become the best friends of a wildly unpopular head of state.

From the beginning, Russian authorities sought rapid privatization of the economy. Wedel mentions legislation passed by the State Duma in June 1991, and again (after the failed coup) in 1992. Wedel mentions the 1992 legislation was "structured to prevent corruption" (p.137) but makes no mention of how. Chubais's program encouraged the accumulation of vouchers, but Wedel fails to explain how this was so, and how it permitted huge fortunes to be made.2 In fact, this is a constant frustration of the book: while Wedel is eternally horrified by the management structure that administered privatization, she never explains the specific outcomes.

Chubais and his American interlocutors were both members of the Russian Privatisation Center (RPC), and serving on/consultants to the Russian State Property Committee (GKI)3; Maxim Boycko, a close confidant of Chubais, acted as his consigliere in both organizations. Wedel (correctly, in my view) recognizes this as a severe conflict of interest.4 A major preoccupation of Western aid to CEE generally was accountability; aid programs were often designed to bypass the government since it was expected to use aid to preserve its (economically) unsustainable state-owned enterprises, etc. In Russia, the system broke down entirely, and American aid officials colluded openly with Russian officials to manage both the disposal of state assets and the delivery of Western aid to institutions. The assistance being delivered was overwhelmingly technical assistance in the creation of financial institutions and markets; but the same set of mutual promoters (from Harvard and St Petersburg) were creating, implementing, and reviewing all the proposals; and one of these entities--the RPC--was private.

LOANS FOR SHARES

Andrei Shleifer, Harvard economist

Jeffrey Sachs, Harvard economist

Privatization stalled soon after 1993, at least in part because its mascot, Acting PM Yegor Gaidar, was sacked and replaced with Viktor Chernomyrdin. The voucher scheme had resulted in the sudden rise of speculators such as Mikhail Khodorkovsky and Vladimir Potanin (1st Deputy PM of Russia), but the actual process of restructuring firms for sale to private citizens had stalled. Worse, the Russian government was facing a liquidity crisis. Vladimir Potanin, an "oligarch," proposed a loans-for-shares auction of stakes in 12 companies, including Yukos, Sibneft, and Norilsk Nickel.5 Wedel's description of the L-f-S scheme is pretty much in line with a dozen other exposés (p.161); Treisman (2010, p.2) lists a few of the milder ones.6 But the fact was that other forms of privatization were blocked by the Duma--even after an armed standoff there.

First: the deal was like a repurchase agreement (or a pawnshop), in which the winning buyer got to take possession of the shares (pledges) if the government failed to repay its debt. Like a pawnshop, the buyers at the auction were lending an amount well below the market value of the pledged shares. As it happened, the Russian state did default on its debts, but the great majority of Russian creditors--ordinary citizens--had nothing as collateral. This default was probably an inside job, in the sense that the RFG probably could have recovered its shares at par by the deadline, but chose not to under the watchful eyes of the oligarchs.

Second, it is immutably true that the single biggest beneficiary of the L-f-S scheme was also its architect, Vladimir Potanin. Potanin ultimately acquired Sidanko for less than $500 million, which is what BP Amoco paid him for a 10% stake in 1997. He also won control of Norilsk Nickel, one of the most valuable mining companies in Russia--which is saying something.7 He and Mikhail Prokhorov, partners in Norilsk, probably are the two most biggest beneficiaries of loans for shares, although Boris Berezovsky and Mikhail Khodorkovsky won enough political influence at the time to bring about their political demise.8 Anatoly Chubais was known to have approved the decision, which was to be one of the least popular in the history of the Russian Federation.

One of the defenses advanced by Treisman (2010, pp.11-12) of the L-f-S scheme is that the most corrupt auctions were those in which the "red managers" acquired control over their own firms. An especially egregious case is Surgutnaftgaz, which raided its own workers' pension fund to pay for its leveraged buy-out. The idea here is that the real corruption was perpetrated by the very people L-f-S was intended to divest of control: the Soviet-era management teams at Lukhoil and Surgutnaftgaz. This is actually the weakest part of his defense, because of course it makes no difference if the oligarch happened to have gotten his swag through a position as a state director or as the head of one of post-voucher Russia's many "banks."

Treisman's defense of having the auctions just then (pp.13-15) is that the public had soured on privatization, and Chubais had to steal a march on the Communists--who seemed poised for victory in the 1996 State Duma elections. But he doesn't attempt to explain how the auctions wound up being so sleazy. He never mentions the scandal that embroiled Jonathan Hay and Andrei Shleifer, or the HMC.9

Doubtless the political conditions for privatization were worsening, or thought to be worsening; and it's also true that the market value of the assets was "doomed" to be low, because of a host of different risks faced by investors. Treisman focuses on the political risks (of Communists winning back the Duma or the presidency, and liquidating the owners); but the uncertainty of future earnings was also a serious problem. The fixed capital of these concerns was in a parlous state, and productivity was terribly low. The price of oil was still in a protracted funk (FRED2; the same was true for other commodities like nickel and platinum), and wastage of assets was a serious problem. Also, there continued to be a lot of conditions on the ground that Treisman doesn't mention, conditions which obviously had nothing to do with the administrative modalities of privatization, or any Western country at all.10

Two more points: one is that Prof. Wedel mentions the L-f-S as a "typical" event in which "lucrative state monopolies" were transformed into "lucrative private monopolies" (p.161). I don't think it was typical: Wedel and Williamson (whose research Wedel relied on a great deal) rely so heavily on it, but it's a very poor example of American advisers "wrecking" the Russian economy. It was under conditions of national emergency, and these conditions had nothing to do with Harvard advisers. The L-f-S firms were extractive industries, like Lukoil and Novilipetsk Metals, not monopolies. One could argue that, as extractive industries, they represented unique flows of economic rents, but they were certainly not lucrative in 1995-1996.

The second point is that foreign entities did object: the IMF criticized the loans-for-shares program (IMF, p.127), but lacked the necessary agency over the tottering Russian government. In an interview for Frontline, Prof. Wedel argued that

What happened was that US policy [...] chose this group of power brokers and basically gave
them a blank check in the form of hundreds of millions of dollars of US and
Western aid, and we helped to create them. Because the main comparative
advantage that the Chubais clan, the so-called young reformers, had in the
Russian context was their access to hundreds of millions of dollars of Western
aid and key Western pundits.

That aid was mostly in the form of ideologically neutral technical assistance, like the setting up of the Russian SEC; and by her own insistence (e.g., p.155 endnote 159 [chapter 4]), the Russian authorities usually denied the claims of major Western pundits to be advisers: they were radioactive! No one can take the idea seriously that Western pundits of any sort were a political asset by January 1993, which means that only the Western aid "made" Chubais powerful.11

And many of the players who were involved in the so-called economic reforms were also involved in politics. So, in promoting this group of young reformers, so-called, we also were promoting their particular political activities.

[...]

So, here, again, we have political aid under the guise of economic aid. Which is familiar to Russians who were raised under communism, because in many respects the essence of communism was that you had economic decisions made in the political realm.

This is a terrible mistake, that exposes a massive error all through the book: that there is a single, easy-to-recognize, correct economic decision that is totally free of any political baggage. In reality, this is hardly ever the case.

[...S]ome of the ignorance was understandable. However, what
was, I think, not understandable and not excusable was the sheer arrogance and
the hubris with which many of these advisers entered the scene and said we have
the answers. [...] And they came with their cliches and tried
to sell people on both sides of the Atlantic on these cliches and on the idea
that they had the answers.

Here, I think Wedel is putting any adviser in an impossible situation. She complains that the advisers were arrogant, but her own advice is to be far more arrogant: to divorce economics from politics. This is a double bind: one the one hand, the advisers were excessively arrogant (they ought to have been more humble?), but on the other hand, they ought to imposed far stricter performance controls on their contacts in Russia (they ought to have been more pushy and controlling?).

E. Semenkova and V. Aleksanian, "The Development of the GKO-OFZ Market: Lessons and Prospects," Problems of Economic Transition vol. 43, no.1 (May 2000), pp.74-81 ; translated from the Russian by M.E. Sharpe, Inc. Original article publsieh by the Institute of Economics, Russian Academy of Sciences. This article is not directly related to anything in this essay, but is a valuable explanation of the short history and financial economics of the state short-term bond (GKO, in Russian) market.

Daniel Treisman, "Loans for Shares Revisited" (PDF), NBER Working Paper No.15819 (March 2010). A defense of the L-f-S scheme. Readers may want to know that Prof. Treisman (of political science, UCLA) is a co-author with Andrei Shleifer of at least one article, "A Normal Country: Russia After Communism" (PDF), Journal of Economic Perspectives, 19, 1: 151-74 (2005). I have serious issues with this 2nd paper (neoclassical economists are amazingly effective at evading evidence of the human costs of their policies; pp.156-157 are pretty hard to take). To make matters worse, analysis of the causes of "output collapse" in the former Communist states of the Warsaw Pact is really purblind.

By far the vast majority of Google hits for "Chubais Clan" are from Janine Wedel; the same goes for "Harvard Institute for International Development." In one counterexample, Martin Mccauley, in Bandits, Gangsters and the Mafia: Russia, the Baltic States and the CIS Since 1991, Routledge (2014. p.28), criticizes Wedel's hypothesis that HIID advisors were decisive in Russian economic policy after 1992; McCauley strips away the qualifications and narrative culs-de-sac to paraphrase Wedel's thesis as, "[the American monetarist gurus] waltzed through the Kremlin as modern-day Pied Pipers of Hamelin." This was impossible even if the Russian leadership had been psychologically disarmed by the likes of Andrei Schleifer: the Russian state was weak and could not raise enough revenue to balance the budget.

Martin McCauley's book is the other, independent author who uses "Chubais Clan." He acknowledges the existence of many powerful clans in Russia and has much more specific bases for associating people into clans.

Chubais was the first head of the GKI, in November 1991 (Wedel, p.139); Wedel strongly implies (p.142) that Chubais remained head of GKI when he became deputy prime minister in September 1994, but in fact Chubais was replaced at GKI by Valentin Polevanov. See Ira Leiberman, "The Rise and Fall of Russian Privatization," in Lieberman & Kopf (2008), p.292 (Lieberman was at the World Bank during the relevant time period); or see Mikhail Berger, "Polevanov: Privatization's Newest Foe," The Moscow Times (6 Jan 1995). Looking up the MT story proved fruitful:

First, all of Chubais' efforts to have one of his deputies appointed -- either Peter Mostovy or Dmitri Vasilyev -- fell through. He was also unable to get President Boris Yeltsin to confirm Sergei Belyayev, who is now heading the state agency in charge of bankruptcy, and with whom Chubais worked closely in St. Petersburg. Yeltsin felt he needed to appoint someone from the provinces in order to "bring in some new blood."

The article strongly suggests that Chubais was, in fact, losing standing as a result of his "promotion," building up a bigger portfolio.

For actual specifics on the Loans-for-Shares scheme, see Treisman (2010), esp. Table 1, p.10. Also: while I'm loathe to defend the L-f-S, one point bears repeating: while the privatization was extremely dysfunctional, it's hard to imagine a more surprising victim than BP Amoco, especially when it got involved in Sidanko (Vladimir Potanin had "lent" the RFG US$ 130M for a 51% stake in Sidanko; later, BP Amoco paid US$ 484M for a 10% stake in Sidanko) But BP would ultimately be obligated to write it all off. See Neela Banerjee, "From Russia, With Bankruptcy; A High Cost for BP Amoco's Investment in an Oil Concern," New York Times (13 Aug 1999). The assets "stripped" from the Russian state required massive restructuring to possess their current high value, and even BP Amoco was unable to capture any.

RE: Berezovsky (Sibneft) and Khodorkovsky (Yukos), see Andrew Kramer, "The Last Days of the Oligarchs?," New York Times (7 March 2009). Both initially sided with up-and-coming St Petersburger Vladimir Putin; both eventually clashed with him after stints as political consiglieres.

"A Federal judge ruled that, by quietly investing on their own accounts while advising the Russian government, Harvard professor Shleifer and his Moscow-based assistant Jonathan Hay had conspired to defraud the US Agency for International Development (USAID), which had been paying their salary." (See "Judge Finds Against Shleifer, Hay and Harvard," Economic Principals (4 July 2004). As for Harvard Management Company (HMC; manages the University's endowment), Economic Principles noted that ("Who Is Minding the Store?" 16 Jan 2005)

Harvard Management was [an] aggressive investor in Russia in the mid-1990s, during the period that Shleifer was advising the Russian government and illicitly investing on his own behalf. For example, Euromoney magazine at the time described Harvard as “bolder than most," because it bought stakes in companies themselves, instead of relying on intermediaries such as hedge fund managers. When government attorneys deposed Meyer in the course of their suit against Harvard, they learned that as much as 1.8 percent of Harvard’s endowment had been invested in Russia in the years before the US government fired Shleifer—some $200 million of a portfolio then worth around $11 billion—not the 10 percent that gossip had it at the time.

Also, in an exchange in The Nation, "The Nation: Exchange of letters between George Soros and Janine Wedel," Janine Wedel mentioned that she was relying on research by Anne Williamson. Williamson's view of the 1990s in Russia is quite similar to that of the John Birch Society with respect to the 1949 Chinese Revolution, viz., that the situation could have emerged perfectly for US interests if the Administration had embraced Austrian economics and imposed it on the Russian authorities; and the reason it did not, is some mysterious conspiracy of Pres. Clinton to discredit capitalism and bring about a return of Communism. This is not sarcasm; it's actually a fairly common point of view.

For example, actual armed fighting over aluminum assets in Siberia. See "Oleg Deripaska and the Russian aluminium wars," EuropeanCEO (24 Jan 2012); or Andrew Kramer, "Out of Siberia, a Russian Way to Wealth ," New York Times (20 Aug 2006). About a hundred people were killed in the Aluminum Wars and many more badly beaten by gangsters struggling for control of the physical plant. This was actually a common problem in Russian then.

In the Frontline interview quoted, Wedel claims that the US introduced voucher privatization, although this seems like an odd claim to me: see footnote 3 (above). Ira Lieberman (p.159) says that Chubais chose the then-familiar Czech system of voucher privatization. No one else claims the US government was pushing voucherization on a resistant Russian public. If this were the case, why would Kokh (a Russian GKI staff member) claim to be part of the group who designed its implementation for Russia?

31 March 2015

Review, Janine Wedel, Collision and Collusion (1)

Janine Wedel, Collision and Collusion, Palgrave Macmillan (2001)

This book is extremely important for readers interested in understanding the present crisis in Russian relations with the West. Part of the reason it is valuable is that it was published at the dawn of the Putin Era, in the very year that the United Russia Party was founded. This book therefore is a look at the future from before the later revival of the Cold War.

THE PREMISE

Still, it's very clearly a polemical book. The author, Janine R. Wedel, soon after became a professor at George Mason University.1 An obvious implication of her subsequent books was that market economies represent an ideal of fairness, that can be achieved (and usually has been in the past). The author's critique of collusion in Central/Eastern Europe (CEE) was a prologue to her own private campaign against collusion in the West--where government officials retire to seven-figure salaries at the firms they erst regulated.2 Whereas her early work on USAID/HIID scandals in CEE focused on unethical/illegal collusion by Americans on foreign soil, her later work acknowledged this as a problem afflicting the West as well--indeed, the problem of the modern West.

As a consequence, while the book delves into sordid details about the administration of US aid to to CEE, there's no effort at balance: every decision made by US administrators of the aid is alleged to be wrong. I was struck by the spectacular one-sidedness: several times, comparing US assistance to EU assistance, she describes USAID programs with quotes from a partisan critic, while describing European programs in the words of the ministries that conceived them.3 More confusingly, the difference between USAID and the EU member states was not quite as cut-and-dried as she says. A lot of overseas development aid (ODA) was multilateral, flowing through institutions like the World Bank Group, the IMF, and the EBRD. Bilateral aid from Europe was more likely to take the form of trade credits rather than grants. Once one sorts out all this, the main difference was that the US government sought to bypass governments, and the European governments (in Central Europe, especially) did not (p.37). A logical problem with this is that European governments were relying on internal structures (their own finance ministries) to manage aid programs in support of governments directly--an intrinsically opaque system, which explicitly pursued close personal ties between the donor government and the officials of the government that was supposed to be reformed.

The obvious objection that Prof. Wedel ignores with this harmonious approach was that, in reforming governments like that of, say, Russia or Romania, the Western governments had an inherently adversarial relationship with the officials--their performance had to be monitored for compliance with reform objectives, on which the aid itself was conditioned. It's not a trivial objection because Prof. Wedel's criticisms focus almost exclusively on the flawed administrative process of guided reforms. What was the likely effect of US-led reforms on the economy of Russia or Ukraine? Readers may already believe, with good reason, that the transformation of the former USSR was so complicated that it's impossible to answer that, and that the flaws in the process are the only basis for judgment available (I hope I'll be able to respond to this argument later on). But in the meantime, she does mention that most EU/EU member state (EU/EUMS) assistance was directed to future EU members like Poland and Hungary, and assistance to CIS states tended to take the form of technical assistance.

There's no question she has an excellent point about the attitude of foreign governments providing transition assistance: the recipients wanted, and probably needed, actual material support, but what they got was a massive amount of "technical advice" and a rather small amount of material aid. In fact, this was a missionary enterprise in the sense that extreme purists of neoliberalism were sent to the ex-Warsaw Pact nations to remake them; any regard for local sensibilities was regarded as backsliding by the missionaries. Another aspect was that the money that supposedly went to CEE was very frequently a subsidy for market fundamentalist think tanks in the donor countries themselves. Economics is an inherently polemical, sectarian field of "research"; if the government funds a large number of hardline Thatcherites at universities in the USA, as missionaries to CEE, then economics overall will likely become more hardline and Thatcherite regardless of the policy outcomes.4

As an aside: Prof. Wedel and may of her sources were anthropologists, not economists. While they share the general Western enthusiasm for genuinely free markets (with unfree markets being evidence of corruption), they have a strong sympathy for the emotion trauma of the CEE officials and general public, for whom receipt of aid was inherently degrading. Several times Wedel mentions (e.g., pp.33-34) the humiliating parallels between Western aid for the Third World and aid for CEE; the distinguishing feature of Third World countries, of course, being the dependence of their governments on foreign aid (p.11). Wedel in this case hits at aid programs for both CEE and the rest of the world.

SOME NARRATIVE

Most of my research for this review was focused on Russia. For various reasons, the integration of Central European countries into the Western European economy was (a) well under way long before the collapse of the USSR, (b) tied to massive direct infrastructure investment in those countries by the EU/EUMS, and (c) facilitated by the small, segmented industrial systems of Visegrad nations (for market reforms, this is favorable). However, there are a few points about Wedel's narrative on PHARE recipients I want to make.

(PHARE was the main EU program of aid to Central Europe; it excluded East Germany and the former USSR for various reasons. SEED was the main program from the USA for this region, and it was administered by the State Department.)

Zygmunt Wrzodaks, Polish rightist

Vaclav Klaus, Czech Republic

Outside of Russia, the main episode described is the privatization of the Ursus Tractor Factory, which had been one of the largest industrial facilities in Poland (pp.67-72). Wedel's narrative of this is murky; we learn that the (Polish) management of Ursus chose (and foreigners paid for) a group of consultants, and the consultants advised the management to downsize staff and make some other changes. Meanwhile, markets for the tractors collapsed and Ursus would prove to be un-privatizable. Also, there was some evidence that the Ursus employees, facing layoffs in a brutal recession, somehow blamed "foreigners." This chews up a lot of time, but nothing meaningful is revealed.5

In regards to the failures at Ursus-Warsaw, Wedel quotes Deputy Manager Andzrej Polakowski, who complains that he didn't understand what the foreign consultants were doing at Ursus and thought they were answering mainly to foreign donors anyway. Most readers may fail to understand from the telling that the management of Ursus was tunneling assets from the company.6 She also neglects to mention that Ursus Solidarity (the crucial factory's local branch of the labor movement) was at this time led by Zygmunt Wrzodak, a violently antisemitic vendor of conspiracy theories.7 The role of explosive political partisanship in CEE is never mentioned.

Turning to the Czech Republic (briefly), Prof. Wedel proudly mentions PM Vaclav Klaus, the first PM of the post-1993 state; he is described as rejecting foreign aid in a speech to the World Bank in 1993 (p.40). No doubts are ever cast on the impression of Klaus as having wisely turned his back on aid, with resultant success for the Czech economy.

Vaclav Klaus is actually a rather peculiar political figure in the Czech milieu: a combination of hardline economic liberalism (Austrian economics, actually) with very intensely conservative, anti-EU ideology.8 In his first term, he ardently sought EU and NATO membership, while keeping those institutions at arm's length. His term in office was accompanied by mediocre-to-poor performance for the Czech economy and ended in a severe crisis.9 The Czech Republic did in fact receive significant amounts of aid (see tables in back of book), although mostly from the American SEED program.

Some of Prof. Wedel's other books include Shadow Elite: How the World’s New Power Brokers Undermine Democracy, Government, and the Free Market Basic Books (2009), a book which describes the modern world as qualitatively and massively more corrupt than in the past. Note her university is named for George Mason, a slaveowner who once wrote, "[Slavery] is daily contaminating the Minds and Morals of our People" (Kate Mason Rowland, ed., The Papers of George Mason, G.P. Putnam's Sons (1892), p.403.

For the record, Prof. Wedel and I happen to (almost without exception) dislike the same things. However, she feels the need to insist everything is new; that "in the past," there was a sharp and reliable division of domain between different forms of power (military, commerce, and politics), and now there isn't. There is no way I can paraphrase this without sounding sarcastic, at least to myself. Part of the reason why I'm not repressing this petty objection is that GMU is about 95% anarcho-capitalist thinktank and 5% accredited university; like many anarcho-capitalist entities, it harbors a natural antagonism towards neoconservatives that it happens to share with the political left. See Stephen M. Feldman, Neoconservative Politics and the Supreme Court: Law, Power, and Democracy, NYU Press, (2012), p.3, or (from the opposite direction), Adam Wolfson, "Conservatives and Neoconservatives," in Irwin M. Stelzer (editor), The Neocon Reader, Grove Press (2004), p.223. Anarcho-capitalism is usually associated with "libertarianism" (in the USA); one of the most well-known partisans is Congressman Ron Paul (TX-14th district, s.1997-2013), whose criticisms of US foreign policy often sound remarkably like those of Noam Chomsky or Howard Zinn.

The object is to woo mainstream liberals or leftists (readers of The Nation, for instance, which has published Wedel's work) to the cause of anarcho-capitalism. Most of Wedel's critics are targets of her books, like [neo]conservative economist Andrei Schleifer and Lawrence Summers.

The most egregious example of this that I can think of is Commissioner Meredith Baker, lately of the Fderal Communications Commission, who ruled in favor of Comcast's acquisition of NBC and changed jobs four months later to Sr. VP for Governmental Affairs (i.e., in-house lobbyist) at Comcast (2011). It needs to be emphasized that there are a very large number of possible examples of this. See Robbie Feinberg, "The Comcast-FCC Revolving Door," Open Secrets Blog (18 April 2014).

Programs developed by EU (or its member states) are described with the logical rationale, and no criticism of that rationale. Programs developed by the US are described without the rationale, or any explanation for their design; in fact, most descriptions are wholly in the form of criticisms by interested parties (i.e., members of CEE governments who needed to shift blame to the US government). See, for example, p.36. An exception is the US Treasury Department's Financial Sector Technical Assistance Program (p.78) and the US Senate-initiated "Gift of Democracy" program (p.80) for parliamentary institutions.

An example of this is Anders Aslund, the oft-mentioned Swedish economist who was funded to advise the government of Russia. A lot of Swedish and US "aid" to CEE consisted of paying Prof. Aslund to dispense his Thatcherism. Aslund had acquired prominence in Sweden because of the historic electoral victory of Christian Democrat Carl Bildt (1991); he received funding through HIID via the Russian Privatization Center (RPC), and his appointment as one of Washington's gurus undoubtedly gave him immense prestige (despite the extremely embarrassing trail he left behind in Russia, Ukraine, and Kyrgyzstan). In 2006, the austerity enthusiasts at the Peterson Institute took him on as a fellow; what was a lobbying agency and publisher of neoliberal apologia got a healthy injection of intellectual respectibility.
On p.153, endnote154 discusses exactly who paid for Jeffrey Sachs and Aslund's work in Russia. Sachs claimed in a letter to Wedel he was mostly paid by the Ford Foundation (the Russian government denied he was ever an advisor; see end note 159). The sequence of end notes 153-159 is extremely interesting, and quite valuable.

The problem of large, but economically unviable firms limping along in various forms of state receivership is not confined to the former Communist bloc. See the case of LTV Steel, in the United States; Riva D. Atlas, "LTV seems on the Verge of a Shutdown," New York Times (19 Dec 2001), read into the Congressional Record, V. 147, PT. 20, (19 Dec 2001-3 Jan 2002), pp.26887-26888. Or see Stanley H. Brown, Ling: The Rise, Fall, and Return of a Texas Titan, Beard Books (1999). Ling is the "L" in LTV, one of the most bizarre and tragic concoctions in US industrial history

Patrick Heenan, Monique Lamontagne, Central and Eastern Europe Handbook, Routledge (2014), p.7. The passage also explains why this happened just then. It's easy to see why the management of Ursus might want to attack the foreign interlopers; they likely felt that the consultants were treating them and the local establishment as suspects in a crime, which in fact they were. "Tunneling" is a type of white collar crime in which a manager uses his position to transfer assets of the firm to another business entity he controls.

See Rafal Pankowski, The Populist Radical Right in Poland: The Patriots, Routledge (2010), p.71. At this time, the Ursus local of Solidarity was particularly important in compelling (through strikes and marches) the Polish authorities to continue subsidizing Ursus. Prof. Wedel does mention Solidarity Ursus as a major factor in the ouster of PM Hanna Suchocka (1993), but not Zygmunt Wrzodaks. Another point: none of this pertains to the national organization of Solidarity.

For a brief summary of Austrian economics and Vaclav Klaus's adherence to this doctrine, see Werner Wüthrich, "About the Austrian School of Economics," Current Concerns (2010). Online records of PM Klaus's views are quite numerous. The European Center of Austrian Economics Foundation (ECAEF) posts his speeches, in which he rails against,

...[T]he gradual replacement of traditional European and Western values with politically correct norms based on new “isms” — cultural relativism, human rightsism, multiculturalism, NGO-ism, feminism, homosexualism, environmentalism, juristocracy and mediacracy.

He is ferociously antagonistic to the EU regulation of greenhouse gases and other ecological constraints.

For Vaclav Klaus's since-lapsed enthusiasm for the EU and NATO, see Vachudova (2001), p.325; this fascinating essay also notes how Klaus's economic nationalism informed policies despite his avowed Austrian ideology; and describes (briefly) the scandal which contributed to his downfall. For his opposition to actually carrying out economic reforms despite his free market rhetoric, see An Evaluation of Phare SME programmes: Czech Republic, Final Report (PDF), RDH/LDK consortium for Evaluation Unit of Directorate General 1A
(External Relations: Europe and NIS) of the European Commission. (Dec 1999), pp.2-3. While the CzR enjoyed high GDP growth for the first four full years of Klaus's term in office, the last year was a debacle; the current account balance veered from bad to horrid; and small-medium enterprise (SME) formation was no better than before he took office.

11 March 2015

Some More Thoughts on Historical Inevitability

A long time ago I posted some writings on historical inevitability (Part 1, 2). Recently I reviewed Bruce Riedel's book, What We Won: America's Secret War in Afghanistan, in which he made the case that (a) the US government successfully brought down the Communist regimes of Central and Eastern Europe by aiding the Afghan rebels, and (b) this effort did not bring about the rise of the Taliban or al-Qaeda. My criticisms of his book made the argument that he had gotten it backwards: Western support for the Afghan rebels did not cause the collapse of the USSR, but it did lead to the rise of deadly sectarianism.

However, Mr. Riedel makes an argument that I think is valid, even if it's wrong in the case where he applies it. In other words, he objects to historical reasoning backwards from an event, to where one assumes planners and actors either knew, or ought to have known, the ultimate consequences of their actions. My criticism was that he was applying this to a case where the Central Intelligence Agency clearly ought to have known the consequences, and making claims about causality that are clearly false. The USSR's fall was almost certainly not hastened by its failed war in Afghanistan; there was little reason to expect funnelling money to the insurgents there would accelerate this. A more likely outcome was the occurance of a major war in Central Europe, or deadly attacks on US government employees. That neither of these occurred is good luck, not skill or prudence on the part of the US deep state.

I've already addressed my views about CIA support for ISI and the mujaheddin in my review. Riedel's claim that the CIA was not to blame for the fact that its material aid went to taqfiri zealots, on account of the Saudi General Intelligence Presidency (GIP) actually managing access to the mujaheddin, is not an excuse--it's not even a bad excuse. But in other cases, it is a fallacy to reason backwards like this.

CONSPIRACY THEORIES

The obvious example is conspiracy theories of history. "Conspiracy theory" is a somewhat unhelpful term of art, since there are definitely conspiracies, and they have definitely had an impact on history. One example is the rather trivial case of military strategy: modern nation-states fighting "asymmetric wars." Concentrated struggles between law enforcement agencies and organized crime is another example,1 especially when the crime syndicates possess allies in the legislature. In many cases, disentangling law enforcement and organized crime is extremely difficult. In some cases, law enforcement is loathe to admit errors of judgment, as (for example), allowing an informant to go on committing heinous crimes, or else, allowing the corruption of handlers in the police department itself. Such conspiracies may potentially be enormous in scope, but are usually very petty in ultimate scope.

The classic conspiracy theory, as popularly understood, is the doctrine of the John Birch Society.2 This organization held that the entire world was locked in an epic struggle between freedom (i.e., capitalism) versus slavery (i.e., Communism), and that every concession made to non-capitalist considerations was conclusive proof that the instigator was a knowing stooge of the evil Communists. That the world was locked in such a struggle was undeniable, and the moral alignment of the two sides was a bromide of US political discourse (for instance, in Mulloy, p.174, a speech by JBS arch-nemesis J.F. Kennedy characterizes the USSR in terms that are practically identical to those used by the JBS). In a way, the JBS was merely doing the same thing that official Washington was doing: confronted with the failure of its ideology, not to mention victims of its meddling, it desperately concocted a conspiracy theory of its own to explain its rejection.

The JBS may have initially resisted being linked to racist ideology, but it was eventually sucked in when it began to insist there was no valid grounds for a Civil Rights movement at all--the entire thing was the result of Communist agitators (this line of reasoning certainly endeared it with Sen. Jim Eastland!).

But the ultimate fallacy the JBS succumbed to, was assuming that all Communist victories were planned in advance by the US national security establishment itself, on the grounds that those victories were the consequence of malfeasance by selected actors. China was therefore Communist because Truman's Secretary of State, Dean Acheson, wanted it to become so, ergo, Secretary Acheson was a Communist conspirator.

In the JBS version of history, there was never any legitimate objection to the treatment of Black people by Whites (or White power structures), and there was never any legitimate criticism of capitalism. Hence, successful (leftist) revolutions were necessarily the result of treachery by those entrusted to resist them. Beyond that, the JBS analysis was astonishingly crude: the US government "instigated" Communist conquest by failing to wage total war against the insurgents at a sufficiently early time.

CHERRY PICKING CONVERGENCE

Click for larger image

One obvious example is found in economics textbooks when I was in high school. Following William Baumol,3 economists were found of pointing out that market economies tended to flourish, and otherwise conform to expectations: national productivity was closely correlated to capital endowments of a country, but higher returns to capital in countries where there was less (e.g., postwar Japan, postwar Italy) ensured rich countries would invest in poor ones, and incomes would converge. This sounds absolutely wonderful, and for much of my life I was totally enthralled with the logic. In fact, it looks as though convergence should occur within regions of a single country (as it did for much of US history.

But look again. Baumol's list of countries includes only the top success stories of 1986. He doesn't include countries which were poor in 1870 and are so today, or which converged until some point in the past, and then became poor. A lot of these countries mostly adhered to unusually strict market policies, such as Lebanon and Egypt; but they're not high income countries today (and neither was in 1976, when the civil war in Lebanon erupted). The cherry-picked data creates an illusion that economic development is mostly like a predictable chemical reaction. The enormous fluctuations in wealth and capital experienced by Japan and Germany, for example, are not shown in this chart.

Here, the inference from economics is that one can indeed predict the success of free market policies in a developing country; common sense says this should occur, and it does... except when it doesn't. To make matters worse, public policies require a consensus for enactment. In cases where no such consensus exists, the results can be an utter disaster. In other cases, the state may lack the means to supply basic infrastructure for a modern, converging economy. "Market reforms" will not bring this about, but there's no guarantee that a state can supply the infrastructure under any ideology: in many cases, good intentions from foreign helpers may be completely defeated by corruption.4; Apparently, one can have a situation where a highly "benighted" regime (in economic outlook) is the only one capable of having the institutional capability to meet any of the criteria required for economic development.

THE CULTURAL REVOLUTION

In the case of tactics, one has only to observe historical events where the outcome obviously was in contrast to the aims of the prime mover. The most spectacular example of this may well be Mao Zedong, whose Cultural Revolution probably made it nearly impossible to resist subsequent shifts in state policy. After all the "capitalist roaders" had been terrorized into submission (1950s), people of good party background were terrorized as well (1966 and thereafter) as well as devout Communists favoring rapprochement with the USSR; when Deng Xiaoping returned to the scene with a plan to dismantle socialism, the usual sort of opposition one observes elsewhere simply didn't arise.

Mao was an exceptionally well-read man with a flair for unconventional thinking. For anyone familiar with Chinese traditions of leadership, his idea of the Cultural Revolution (and management of it) was even more astonishing than someone who isn't. Moreover, it's hard to defend the proposition that Mao didn't care about the fate of Communism in China: a close reading of his efforts makes it clear it was about the only thing he really did care about. But the outcome of his efforts--including the pharaonic cult of personality, designed to ensure reverence for his ideas as well as fearful obedience to them--was pretty much the antithesis of Maoism.

A common feature of conspiracy theories is the proposition that a particular party favored an event, or applauded it, and therefore brought it about. This should be self-evidently wrong to anyone, but even more obviously wrong is the whole notion that, when putatively omnipotent actors like the US government suddenly "lose control," and suffer humiliation. The problem here is that the US government is not a cohesive entity and its components aren't either. The debacle in Vietnam, for example, permanently altered the ideology of Congress and the obsessions of the deep state. Historical explanations featuring a very large organization really aren't explanations.

See D.J. Mulloy, The World of the John Birch Society: Conspiracy, Conservatism, and the Cold War, Vanderbilt University Press (2014). The quote on p. 174 is:

The great battleground for the defense and expansion of freedom today is Asia, Africa, and the Middle East, the lands of the rising peoples. The adversaries of freedom did not create the revolution, but they are seeking to ride the crest of its wave, to capture it for themselves, Yet their aggression is more often concealed than open. They have fired no missiles, and there troops are seldom seen. They send arms, agitators, aid, technicians, and propaganda to very troubled area. But where fighting is required, it is usually done by others, by guerrillas striking at night, by assassins striking alone--assassins who have taken the lives of 4,000 civil officers in the last twelves months in Vietnam alone--by subversives and saboteurs and insurrectionists, who in some cases control whole areas inside independent nations.

Examples of this sort of rhetoric are abundant. Mulloy probably selected this particular example (from a vast number of alternatives) because it reflects so precisely the conspiratorial view of global Communism regarded as "lunatic fringe." In fact, the JBS was merely taking another logical step, to the conclusion that the Communists had infiltrated the leadership of the USA itself.

See, for instance, efforts to rebuilt Managua, Nicaragua after the 1972 earthquake. F.Y. Cheng, Y.Y. Wang, Post-Earthquake Rehabilitation and Reconstruction, Elsevier (1996), p.172; Notice in Nicaragua, it required a revolution against the Somoza regime to bring about any improvement at all.

05 March 2015

Review of Bruce Riedel What We Won: America's Secret War in Afghanistan Brookings Institution Press (2014)

This book has been very well-received in most serious circles. The author, who advised President Barack Obama on Afghanistan policy from the beginning1, has a startling message: Western intelligence agencies, including the American CIA, Britain's MI5, and others, did help defeat the USSR by supplying the mujahidden rebels in Afghanistan; but they were certainly not responsible for the appearance of groups like the Taliban or al-Qaeda. The main error of the USA in supporting the mujahidden was to abandon them after February 1990. These are the main points, and I would like to explain why they are implausible.

A few points of clarification before I begin: one, I am NOT a member of any intelligence organization. I have no security clearance; I'm only reviewing a book based on publicly available information. Two, the ISI is the Directorate of Inter-Services Intelligence of the Pakistani armed forces, which was the principal interlocutor of the CIA during the secret war in Afghanistan.2 Three, the USA has been a major supplier of foreign aid to Pakistan since independence (with the exception of a brief interlude, which I'll mention below)3; in addition, or separately, the CIA funneled money directly to the mujahidden4). So when writers speak of the US "abandoning" Af-Pak" after the Soviet withdrawal, there's reason to question this narrative. I'll discuss that below also.

ABANDONING THE FIELD

It is frequently alleged, especially in Pakistan, that the USG abandoned Pakistan after the Soviet-Afghan War. In some senses, this is a fair allegation: in October 1990, after six years of looking the other way, the White House "noticed" Pakistan's nuclear weapons program and drastically all forms of aid. Diplomatically, the US was suddenly antagonistic to Pakistan; even as it shifted from military to civilian rule. The reason was that Pakistan was determined to use its alliance with the USA in a war against India, which would have been utterly horrific.

Aid continued to flow to the mujahidden after 1990; it continued until April 1992.5 The USG was faced with an insoluble dilemma: the ISI was essentially running Pakistani foreign policy through fait acompli, while the Bhutto (and subs. Sharif) governments were locked in a political death-match with Pres. Ishaq Khan and each other. The intelligence services (remember, Pakistan has several agencies) were implicated in the political turmoil,6 and it became apparent that aid to the government was sure to result in a political crisis for Pakistan. The rival factions of mujahidden were fighting each other; the comparatively benevolent ones, like Ahmed Shah Massood, were not accessible to the CIA.

For this reason, "sticking with the job" was not feasible. All of the parties in Pakistan were seeking to avoid public association with the USA anyway.

On p.149, in his list of recommendations for future covert wars, Bruce Riedel warns against "mission creep," which in this case meant going from the Carter plan of harassing the Soviets, to the Reagan [era] plan of defeating the Kabul government. This would have meant an even more "egregious" and arbitrary-seeming abandonment of Pakistan than what actually happened.7 But at least it's original.

THE 3 JULY FNDING

As is now, I think, universally known, on 3 July 1979 Carter issued a presidential "finding" for assistance to the mujahidden; writing for The Nation, Eric Alterman writes "First revealed by former Director of Central Intelligence Robert Gates in his 1996 memoir From the Shadows, the $500 million in nonlethal aid..." Alterman's article is about as shoddy as it's possible to get: Gates' memoir cites a figure of $500 thousand, while cumulative US aid to the mujahidden did not reach the $500M level until 1985. He also ignores the fact that the DRA government was a junta with massive Soviet support, which had accelerated during its troubled 18-month history.; The Soviets had not yet invaded, but they had definitely taken over (analogous to South Vietnam, prior to October 1963--in this case, with the USG).8 Gates hints that more "non-lethal aid" followed, but doesn't specify how soon or how much.In any event, the inference drawn by Alterman and Blum is totally false: the USSR was committed to propping up a client state despite it swerving out of control. There were already ample Soviet/KGB assets in Afghanistan, and had been since the Saur (April) "Revolution" of 1978.

One point about the Nouvelle Observateur article: it's been translated twice (English to French, French to English). The title of the article declares that ‘Oui, la CIA est Entrée en Afghanistan avant les Russes...’ ("Yes, the CIA was in Afghanistan before the Russians") which is emphatically false. The Soviet government had a long-standing relationship with PM Muhammad Daoud Khan, long before he ousted his cousin, King Zahir, in the 1973 coup, and dating back to 1965. This isn't necessarily a bad thing, but clearly Brzezinski was not listening to his interlocutor and assumed "intervention" meant "invasion." Even if one acknowledges (as the CIA eventually did, internally) that the Soviets were surprised by the PDPA coup in 1978, they nevertheless acted quickly to shore it up militarily. In any event, declassified documents do not support any of Brzezinski's remarks. For one thing, the Soviets were demonstrably not concerned about the rural uprising because they did not expect it would be hard to suppress. They were angry with the renegade Hafizullah Amin, who had murdered their client Nur Taraki.9

On the other hand, there the case of Gen. Naseerullah Babar, former interior minister of Pakistan. In 1973, as mentioned above, the monarchy had been overthrown by Daoud Khan. The new '73 coup was, like the subsequent 1978 "Saur Revolution," pro-Soviet and comparatively left-leaning; more urgently, from the point of view of Gen. Babar (and Pres. Zulfikar Ali Bhutto), the new regime favored a major border revision. Gen. Babar successfully recruited Gulbuddin Hekmatyar, Burhanuddin Rabbani, and Ahmed Shah Massood to launch attacks on the Afghani army from the Panjshir Valley. This insurgency failed to oust the government but may have extracted concessions from it; at the time, Pakistan's relationship with the USA was in suspended animation.10

ACCESS TO THE MUJAHIDDIN

Riedel claims many times in his book that the CIA "had very little direct contact" with the fighters or their leaders (p.41, quoting Robert Gates) as well as the Arab volunteers (p.81, preceding a detailed account of UbL's and Abdullah Azzam's CIA un-influenced experience in Afghanistan. Steve Coll corroborates this claim, which surprised me. For example, as late as 1989, Milton Bearden, CIA station chief in Islamabad (of the sort typically described as "colorful") describes running into a Gulf Arab (?) volunteer intent on killing "infidels" in Afghanistan. At first I expected to debunk this claim with documents available since 2004, but there really isn't a lot of evidence that the USG/CIA had any interaction with foreign volunteers. Sure, Prince Bandar told Larry King that he had been thanked by UbL for the latter's efforts to bring "the Americans, our [Usama's and Bandar's, presumably] friends, to help us against the atheists" (In case it isn't obvious, I don't think this ever happened). But for the most part, encounters between either the Wahhabi volunteers or the higher ranking figures of the mujahiddin leadership were with Saudi entourages.

Interviews with US station personnel in Pakistan validates this thesis. Much of intelligence work done in Pakistan during the mid-late 1980s was to determine what the ISI was doing with US money and weapons. A key opponent was the embassy and CIA staff in Islamabad, who dreaded leakage of internal criticism to their Pakistani hosts. But gradually, the message reached Washington by 1988 that the ISI was totally devoted to the most extreme Wahhabist factions, rather than ones that were effective or likely to win respect in Afghanistan. Pakistan's hoped-for transition to democracy was a descent into anarchy and potential nuclear war with India; amid the endless repining about abandoning the region in the 1990s (along with Leonard Shelby-levels of forgetfulness about why "we" did so), the political establishment in the USA was unwilling to fully disavow the ideology and goals of the Taliban. Members of the US Congress certainly would not have liked to live in Taliban-controlled Afghanistan, but they clearly preferred the Talib for the people of Afghanistan.

MY PROBLEM WITH THE PREMISE OF THE BOOK

There is a well-established pattern of the USG targeting modernizing foreign governments (sometimes with compelling reasons, sometimes not), ousting them at terrible cost, and leaving sectarian tyranny in place. Bruce Riedel is very anxious to remind us that it was the Soviet invasion and occupation of Afghanistan that created the international jihadist movement, and it was General Zia ul-Haq who made the decision to launch the war of resistance. Saudi-Pakistani motives were compatible, in Afghanistan, and in some respects Pakistan had opened itself up to internal development by the Saudis.11

This was, in effect, a vending-machine regime-change; the USG dropped a lot of coins into the Pakistani slot, prevented do-gooders from unplugging the machine, and after ten years there was a loud clonking in the dispenser; but the soda was a little fizzier than anticipated. Who could have expected such a thing? In case you think I'm attacking a straw man, here's Bruce Riedel:

The Muslims who came to Pakistan in the 1980s to fight with the mujahedin did not come because of the CIA, the ISI, or the GID*, they came because of the Soviet invasion. [...] To suggest there is some inevitable link between President Carter's and President Reagan's backing of the mujahidin and 9/11 is tortured and incorrect logic. It also shows a lack of understanding of the U.S. role in the Afghan war. CIA officers in Pakistan had no interaction with the Arab volunteers, just as they had little interaction with the mujahedin themselves. The business of fighting the war was in the hands of the ISI, not the CIA. (p.81)

On p.151, Riedel briefly reprises this message. One might point out that Riedel contradicts himself: if the ISI and the Saudi GIP were actually managing the fighting, and the CIA was merely providing money, weapons, and diplomatic cover, then he can't use the same argument to exonerate them as well as the CIA. At the very least, the ISI and the GIP bear some of the blame for the extreme comparative success of Gulbuddin Hekmatyar and Burhanuddin Rabbani--who won because they let others fight the Soviets, while they fought the other mujahiddin. But even then, it's absurd to imagine that the CIA, or its political masters (snort) in Washington had no responsibility to notice the disturbing ideology of the fighting forces. The huge increase in the number of madrassas in Pakistan, funded by Saudi Arabia, was clearly intended to remold public perceptions of what Islam means. Pakistan was not a sequestered Shangri-La closed to Western eyes; its society was under intense scrutiny by official Washington. The notion that the State Department and the CIA were unable to predict the rise of a quasi-Islam targetting the USA, is impossible to take seriously.

Either the US endeavor in Afghanistan had no effect on the history of the region (unlikely), or it did. The Soviet commitment to the Afghan War was small: a peak commitment of 100,000 troops, in a war on its very border. In contrast, the US commitment to the War in Viet Nam was massive: a peak of 540,000 troops (both figures apply for a short time only). The famously casualty-averse USA lost 58,000 Americans in the Vietnam War; the poorer, authoritarian USSR lost 15,000 troops in Afghanistan. As a share of available resources, the Afghan War for the Soviets was about the same as the Vietnam War on the USA.12 Economically, I find it hard to take seriously the proposition that the Afghan War caused the collapse of the USSR, or even contributed significantly; it merely made thousands of Soviet conscripts miserable. Liberating Afghanistan was naturally not a goal of the CIA; the ISI, as Riedel acknowledges, wanted to win control of Afghanistan for Pakistan.

On the other hand, insisting that the foreign jihadi volunteers who traveled to Afghanistan were not influenced by the CIA effort there is a bad faith argument. The CIA was well aware that the ISI's goal was to get at India, not the USSR or Communism. The Saudi goal for Afghanistan was directly visible in the refugee camps of the Northwest Frontier Province. Emotional antipathy towards the Americans was constantly on display in Pakistan; the ISI definitely felt the need to hide its cooperation with the Americans (but not the Saudis) from the Pakistani public. In 1979, rumors that the US was to blame for a Wahhabist uprising in Mecca caused Pakistanis to riot at the US embassy in Islamabad, killing four inside. This was, at the very least, a place that was (a) very poorly understood by the Americans, and (b) obviously receptive to the most explosive anti-American hatred. This alone ought to have given the US authorities pause, but it did not. Likewise, the ideological chasm between the GIP and American society could reasonably have been expected to forestall any joint black operation when the Americans were barred any chance to observe what was happening. A genuine ally does not have an uncontrollable urge to kill you if he meets you; this was what GIP and ISI agents explicitly said was the motive for denying CIA officers access to mujaheddin in theater. There is no way this could have failed to produce a massively deadly terrorist attack on the US and its allies, and of course it did.

Hence, Bruce Riedel has got it exactly backwards: the intervention in Afghanistan's 1979-1992 "Civil War" produced, not freedom for Central Europe, but a large, well-seasoned, well-connected movement of eager terrorists, delighted to cleanse themselves of the stain of collaboration with the CIA. Some even made it to New York City.

* Riedel probably meant "GIP," not "GID." The GID is a Jordanian
intelligence agency which sees Islamic fundamentalism as a major threat
to the survival of Jordan. The Saudi intelligence agency's English
acronym is GIP.

ISI is the best-known intelligence agency in Pakistan, but--like the American CIA--is neither the only intelligence agency in that country, nor entirely identical in interest and outlook to its government, military, or rival social classes. See Peter Lyon, Conflict Between India and Pakistan: An Encyclopedia, ABC-CLIO (2008). While an analysis of the dynamics of the Pakistani intelligence/police services is not possible here, it is definitely relevant to events that followed.

For data on US aid to Pakistan, see Claire Provost, "Sixty years of US aid to Pakistan: Get the data" The Guardian (11 July 2011). This article includes links to source material and a database. Data on foreign aid is classed by type; in no year since 1951 has there been no US financial aid to Pakistan, but military aid plummeted after the 1963 Indo-Pak War, and ceased after 1968. It increased after 1983, although no doubt much "direct" (i.e., non-USAID) economic assistance was actually secretly intended to strengthen the Pakistani armed forces (Riedel discusses this a bit, around pp.103-105).

Military assistance to Pakistan ended in late 1990, as a result of the Pressler Amendment; it resumed in 2002, for obvious reasons, and is now immense.

Military assistance to the mujahidden included cash and weapons bought with that cash--most notably, the Stinger missile system, authorized for use after 1985. The US Dept. of State reported (in 2011) a total outlay of $3 billion to the mujahidden; press reports cite a flow of $20M (in 1980) "rising to to about $300 million per year during FY1986-FY1990." (Kenneth Katzman, "Afghanistan: Post-Taliban Governance, Security, and U.S. Policy," Congressional Research Service, 24 Feb 2015, p.4.). Footnote 2, same page, mentions, " For FY1991, Congress reportedly cut covert aid appropriations to the mujahedin from $300 million the previous year to $250 million, with half the aid withheld until the second half of the fiscal year. See “Country Fact Sheet: Afghanistan” (PDF) in U.S. Department of State Dispatch, vol. 5, no. 23 (June 6, 1994), p. 377."

Robert Gates, From the Shadows, (1996), p.432.; Robert Gates was DCI from Nov 1991 to January 1993. Gates later claimed otherwise, switching over to the narrative that the USG perfidiously abandoned the region after the USSR evacuated.

Because in that case the CIA would have broken off collaboration with its ISI partner before its partner's objectives in that theater were finished, and while the personnel in Pakistan was largely the same. After 1989, ties of loyalty to individuals in the Pakistani government became inherently conflicted because the political establishment was divided against itself. ALSO: p.132, Riedel objects to the post-1990 neglect of the mujahidden, Afghanistan, and Pakistan. This is admittedly not the same thing as calling for more money to be supplied, but it seems most unlikely any options were then available to the CIA.

Steve Coll (Ghost Wars, p.200) mentions that Frank Anderson, director of the Afghan Task Force at Ft. Langley (CIA HQ), was arguing for CIA withdrawal from the the Secret War well before the Soviet troop withdrawal (Feb 1989).

Eric Alterman, "Blowback: the Prequel" (The Nation, 25 Oct 2001): The legend of a massive US scheme to provoke a Soviet invasion of Afghanistan by "stirring up Moslems" [sic] was promoted by Zbigniew Brzezinski (Alterman tries to distance himself from William Blum, who undoubtedly drew attention to the interview Brzezinski gave to Le Nouvelle Observateur in 1998, but fails; see Killing Hope appendix, or Rogue State). Steve Coll, Ghost Wars (2004), p.46 also cites Gate's 1996 memoir on the 3 July finding.

For a sadly amusing account of the deadly triangle of Amin, Taraki, and the KGB, see Steve Coll, Ghost Wars, pp.48-49.

Ibid., p.114.

Saudi Arabia's massive foreign assistance program probably ought to be regarded as an ideological developmentalist regimen. Western critics of the Saudi state usually make the mistake of imagining it to be self-consciously seeking to restore the middle ages to the Islamic world. In fact, the Saudi state is quite visionary; its foreign assistance program does in fact pursue the economic development of its partners, albeit in an opaque and decentralized manner. Pakistan's ruling institutions certainly appreciated the aid received from Saudi Arabia, and evidently approved of its objectives for Pakistani society.

There are a lot of pitfalls in my comparison, but Riedel says the Afghan War cost the Soviets 2% of their GDP in 1986 (p.31, citing the DIA estimate; admittedly, GDP estimates for the USSR were probably excessive); the Vietnam War cost the USA about 2.3% of its GDP in 1968 (Stephen Daggett, "Costs of Major U.S. Wars" (PDF), Congressional Research Service-29 June 2010, p.2). Both estimates are in current accounting and ignore indirect costs. Both wars lasted about the same time, with the Soviets and Americans getting involved indirectly before officially invading, and continuing to fund their respective sides for a couple of years after departing. Note this comparison is not decisive; it can be argued that a socialist economy is less adversely affected by massive amounts of unproductive spending than is a market economy; on the other hand, market economies are more resilient, and can recover.